Portfolio Risk
(^121212222222)
12 12 2 2 1 2 12 1 2
McDonald's x x 1 ñ 17 ó. 1 ó 20 .. 855.^45 x ó (. 45 ) ( 20. 8 )
1 17. 1 20. 8
Bristol-Myers x ó (. 55 ) ( 17. 1 ) x x ñ ó ó.^55.^45
Bristol -Myers McDonald's
× × × = × = ×
× × ×
= × = ×
Example
Suppose you invest $55 in Bristol-Myers and $45 in McDonald’s. The
expected dollar return on your BM is .10 x 55 = 5.50 and on
McDonald’s it is .20 x 45 = 9.90. The expected dollar return on your
portfolio is 5.50 + 9300 = 14.50. The portfolio rate of return is
14.50/100 = .145 or 14.5%. Assume a correlation coefficient of 1.